Download sector_report1.pdf - Microfinance and Development ...

in the loan tenure of 24 months. The second loan product allows clients to prepay 6 principal
installments and enjoy flexibility in the latter part of the loan tenure.
A baseline survey has been completed and will be followed by short household surveys conducted
on a quarterly basis in order to track income flows and understand the reasons for skipping
principal installments. A mid-term survey will then be conducted, as well as a final survey after
one loan cycle has been completed.
2.2 Experiments on repayment schedules in VWS (Village
Welfare Society), West Bengal 19
Most MFIs have
a weekly
repayment
schedule with
weekly centre
meetings to
maintain low
levels of
default. This
tends to impose
a high cost
structure on the
MFI. However,
if infrequent
repayments do
not produce an
increase in
default rate, or
if this increase
is lower than
the reduction in
transactions
costs, it may
well be
worthwhile for
the MFI to
examine it as a
serious
alternative to
the weekly
model
Objective and methodology Most MFIs have a weekly repayment schedule with weekly centre
meetings to maintain low levels of default. This tends to impose a high cost structure on the
MFI. However, if infrequent repayments do not produce an increase in default rate, or if this
increase is lower than the reduction in transactions costs, it may well be worthwhile for the
MFI to examine it as a serious alternative to the weekly model. CMF uses a randomized design
to examine the impact of repayment frequency on the capacity of households to smooth
consumption, to manage cash flows and adapt their loan cycle to the business cycle, repayment
rates and organization's transaction costs. Three repayment schedules are compared 20 : weekly
meeting-weekly repayment, weekly meeting-monthly repayment and monthly meeting-monthly
repayment 21 .
Preliminary results So far there is almost zero percent default among all groups, and no
difference in repayment between weekly schedules and monthly schedules. If the completed
study confirms these results, this could lead to significant savings in terms of transaction
costs. Most businesses can be categorized in two types: as "mahajan' or piece based and
market based or independent businesses. For the first type, weekly payments seem to make
more sense since they get paid piece wise. Market based clients seem to prefer monthly
payments as they sell on credit and can not always recover their payments every week. Monthly
repayment schedule could allow them to reinvest money into their business when they recover
their costs. It seems therefore that the benefits of monthly payments could vary according to
activity. The rest of the study will test these hypotheses. Regular business surveys as well as an
end line survey will be administered.
2.3 What savings products do people want 22
Objective and methodology This qualitative study aimed to identify demand for, supply and
usage of savings products among poor people. Qualitative interviews were conducted with
savings providers and with clients of the Micro Credit Foundation of India (MCFI) in Madurai.
Findings Informal savings used by respondents include schemes at jewelry shops, buying
gold, petty cash hidden around the house, unregulated chit funds, saving with moneylenders,
exchanging cash gifts at social functions and schemes for small savings at school. Formal
savings mechanisms include banks, insurance companies, post offices and regulated chit
funds. However less than half the respondents had bank accounts and most of those were
inactive; less than one-fourth of the women had post office deposits. The most popular
scheme is the LIC policy with fixed deposits maturing after a period of 15-25 years with
interest.
158